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On Price-Setting for Identical Products in Markets without Formal Trade Barriers

Author

Listed:
  • Hassink, Wolter

    (Utrecht University)

  • Schettkat, Ronald

    (University of Wuppertal)

Abstract

This paper investigates price-setting for truly homogenous products sold in markets without any formal trade barriers. We use data from IKEA, a furniture company selling identical products in an identical shopping environment in different EU countries. We get four remarkable outcomes: 1) The law of one price does not hold. 2) Country-specific effects of non-tradable cost components are important. 3) Pricing to the market surely occurs but price discrimination is limited by incomplete information. 4) The unexplained part of between-country price variation for identical products is about 75% which leaves most of the inter-country price variation unexplained.

Suggested Citation

  • Hassink, Wolter & Schettkat, Ronald, 2001. "On Price-Setting for Identical Products in Markets without Formal Trade Barriers," IZA Discussion Papers 315, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp315
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    References listed on IDEAS

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    Cited by:

    1. Gourinchas, Pierre-Olivier & Hsieh, Chang-Tai & Gopinath, Gita & Li, Nicholas, 2009. "Estimating the Border Effect: Some New Evidence," CEPR Discussion Papers 7281, C.E.P.R. Discussion Papers.
    2. Maria Cipollina & Luca Salvatici, 2008. "Measuring Protection: Mission Impossible?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 577-616, July.
    3. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    4. Baxter, Marianne & Landry, Anthony, 2017. "IKEA: Product, pricing, and pass-through," Research in Economics, Elsevier, vol. 71(3), pages 507-520.
    5. Jean Imbs & Haroon Mumtaz & Morten O. Ravn & Hélène Rey, 2005. "PPP Strikes Back: Aggregation And the Real Exchange Rate," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 1-43.
    6. Gita Gopinath & Pierre-Olivier Gourinchas & Chang-Tai Hsieh & Nicholas Li, 2011. "International Prices, Costs, and Markup Differences," American Economic Review, American Economic Association, vol. 101(6), pages 2450-2486, October.
    7. Wolter H.J. Hassink & Ronald Schettkat, 2003. "Price discrimination between EU regions," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 94(2), pages 258-264, May.
    8. Michael J. Ferrantino, 2006. "Quantifying the Trade and Economic Effects of Non-Tariff Measures," OECD Trade Policy Papers 28, OECD Publishing.
    9. Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universitätsbibliothek Wuppertal, University Library.

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    More about this item

    Keywords

    price discrimination; Price setting;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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